Mobilink Microfinance Bank Limited

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1 Powered by TCPDF ( The Pakistan Credit Rating Agency Limited Rating Report Report Contents 1. Rating Analysis 2. Financial Information 3. Rating Scale 4. Regulatory and Supplementary Disclosure Rating History Dissemination Date Long Term Rating Short Term Rating Outlook Action Rating Watch 30-Apr-2018 A A1 Positive Maintain - 26-Oct-2017 A A1 Stable Maintain - 28-Apr-2017 A A1 Stable Maintain - 05-Aug-2016 A A1 Stable Upgrade - 25-Mar-2016 A- A2 Stable Maintain - Rating Rationale and Key Rating Drivers The ratings of ("the Bank") take comfort from the relationship of the Bank with a leading global telecom group - Veon (formerly Vimplecom) - and with Pakistan's largest cellular operator Jazz (formerly Mobilink). Sponsors' commitment to the bank is witnessed in the form of both technical collaboration and financial support. Ensuing synergies are strengthening the bank's penetration in target markets. Leveraging on the sponsors network and renowned brand name (JazzCash), branchless banking domain is taking on a rapid growth and being reinforced with the aim of expanding Mobilewallets accounts. The bank's current strategy is pivoted around capitalizing on its digital banking base having strong support from its super agent cellular operator. The management's confidence lies in keeping this segment's margins sustained and bring it at the forefront of mobile banking services, amidst rising competition. The bank held a market share of ~5% in the total Gross loan portfolio and ~8% in the total deposits of the Microfinance industry by End-Dec'17. Overall asset quality is healthy supported by robust recovery framework. Deposit base is widening on year-on-year basis with branchless banking concentration of ~56% of the total deposits by the end of Dec'17. This provides a competitive edge to the bank in establishing a significantly low cost deposit base transpiring into better margins. Positive outlook takes into account progress towards growth trajectory by means of increased market captivation in digital banking. The low cost branchless deposit base in relation to the absolute gross advances of the bank breeds into larger spreads eventually improving the profitability of the bank as a whole. Going forward, capitalization of this cost benefit into increased market share remains important. Name of Rated Entity Type of Relationship Purpose of the Rating Applicable Criteria Related Research Disclosure Solicited Entity Rating Methodology MicroFinance Institutions (Jun-17),Methodology Correlation between long-term and short-term rating scale(jun-17),methodology Criteria Modifiers(Jun-17) Sector Study Microfinance Bank(Apr-18) Rating Analysts Amara Gondal amara.gondal@pacra.com

2 MICROFINANCE The Pakistan Credit Rating Agency Limited MOBILINK MICROFINANCE BANK LIMITED Incorporation Feb Legal status Outreach Head Office OWNERSHIP Microfinance Bank Public Limited 61 branches nationwide F-8 Markaz Islamabad MICROFINANCE SNAPSHOT Composition of 11 Microfinance Banks (MFBs), 16 Microfinance Institutions (MFIs) and 6 Rural Support Programs (RSPs) with a credit outreach of ~44%, ~33% and ~19% respectively. Gross Loan Portfolio recorded at PKR~202bln at End-Dec17 indicating a growth of ~10% in the 4QCY17. Savings increased by ~15% in the 4QCY17 and recorded at PKR~163bln at End-Dec17. Sector s outreach growth rate - over ~6% in the 4QCY17. Mobilink Microfinance bank (herein referred to as the bank ) is a wholly owned subsidiary of Global Telecom Holding S.A.E which in turn is majorly owned by Veon (formerly Vimplecom) one of the world s leading telecom groups. Veon also owns Pakistan Mobile Communications Limited (Jazz formerly Mobilink) - one of Pakistan s largest telecommunication companies. The bank also offers branchless banking services, branded as JazzCash, through strategic alliance with the cellular operator, Jazz, a related party, under the branchless banking license from SBP. GOVERNANCE The bank s Board of Directors comprises of 7 members including the CEO, 3 directors from Veon, one director from Jazz and two independent directors. Mr. Amir Hafeez Ibrahim is the Chairman of the Board. He also serves as the CEO of Jazz. The Board has four sub-committees; (i) Audit (ii) HR & Compensation (iii) Risk Management & Compliance & (iv) IT Committee. MANAGEMENT The CEO, Mr. Ghanzanfar Azam has an overall experience of ~32 years in the telecom sector and is assisted by a team of qualified and experienced professionals. Recent amendments in organogram brought clarity, focus and efficiency in role transition; team cohesiveness remains important RISK MANAGEMENT Separate Risk Management department is in place to oversee risks including credit, operational and market risks. Sound technological infrastructure to support core and branchless banking operations; Multi-tier credit approval process to enhance mechanism for credit worthiness assessment. ASSET RISK Prominent rise in gross loan portfolio of ~69%YoY was witnessed at End-Dec 17, i.e., PKR~10,002mln (End-Dec 16: PKR~5,934mln), supported by initiation of operations at 10 new branch locations in CY17 (CY16: 51 branches). Healthy asset quality demonstrated from constricted infection ratio of ~0.3% - being one of the finest amongst the peers, despite a small portion of gold-backed loans (~13%) in the total loan book. The highest chunk of loan book remains tilted towards agricultural loans followed by livestock and enterprise loans. Investments majorly include Market T-bills which reduce the market risk to an acceptably low level. PERFORMANCE The bank s market captivation in terms of gross loans stood at ~5%. Average loan size of the bank remained larger than the peers. Share in terms of deposits however witnessed a marginal drop to~8% despite an increase in number of depositors owing to smaller average deposit size in comparison to industry. ~56% of the bank s deposits emanate from branchless banking domain which provides the bank with a competitive edge to develop a significantly low cost deposit base breeding into healthier spread and net margins for the bank. Rationalized distribution of deposits due to smaller average ticket size per depositor. CASA accounted for ~82% of the deposit base. Net Interest/Markup revenue surged hugely by ~114% clocking in at PKR~2,107mln in CY17 (CY16: PKR~986mln) backed on account of low cost branchless deposits translating into upgraded operating results. Branchless banking margins dwindled to PKR~301mln in CY17 (CY16: PKR~421mln) as a result of higher agent commissions and biometric verification systems. Net income from Branchless banking is shared among the bank and Jazz in the ratio 30:70. At end- Dec 17, number of active BB agents recorded was ~73,301. Going forward, the bank is eying on optimizing its competitive edge in digital banking through increasing its Mobile-wallets base in collaboration with its cellular super agent Jazz. Bottom-line of the bank clocked in at PKR~612mln in CY17 (CY16: PKR~231mln) FINANCIAL RISK External funding of the bank is solely fueled by deposits which clocked in at PKR~14,943mln at End-Dec 17 (End-Dec 16: PKR~10,306mln). Deposits highly concentrated by individual savings followed by corporates and financial institutions. Liquidity profile remained adequate as witnessed from liquid assets-to-deposits and borrowing ratio of ~58%, though reduced from CY16 (~68%). Going forward, cautious approach towards liquidity management is imperative. The bank remained compliant with capital adequacy requirements and minimum capital requirements of SBP. At End-Dec 17, CAR stood at ~25% - backed on account of equity injection by sponsors of PKR ~1.2bln in Dec-17 resulting in notable increase in tier-i capital. The net equity of the bank stood at PKR~3,104mln at End-Dec 17.

3 The Pakistan Credit Rating Agency Limited Microfinance Financials Summary PKR mln BALANCE SHEET 31-Dec Dec Dec-15 Earning Assets Advances 9,971 5,932 1,350 Investments 4,528 1, Deposits with Banks 3,047 4,743 2,402 17,546 12,170 3,878 Non Earning Assets Non-Earning Cash 1, Net Non-Performing Finances (152) (73) (8) Fixed Assets & Others 2,115 1, ,035 2,064 1,013 TOTAL ASSETS 20,581 14,234 4,891 Funding Deposits 14,943 10,306 3,197 Branch Banking 6,513 6,187 1,616 Branchless Banking 8,430 4,119 1,581 Borrowings ,943 10,306 3,197 Non Interest Bearing Liabilities 2,533 1, TOTAL LIABILITIES 17,476 11,714 3,890 EQUITY (including revaluation surplus) 3,105 2,519 1,000 Deferred Grants Total Liabilities & Equity 20,581 14,233 4,891 INCOME STATEMENT 31-Dec Dec Dec-15 Interest / Mark up Earned 2,617 1, Interest / Mark up Expensed (510) (255) (55) Net Interest / Markup revenue 2, Branchless Banking Income (excluding admin expenses) Other Operating Income Total Revenue 2,647 1, Other Income Non-Interest / Non-Mark up Expensed (1,652) (1,291) (1,018) Pre-provision operating profit (188) Provisions (116) (67) (5) Pre-tax profit (194) Taxes (269) (104) 157 Net Income (37) Ratio Analysis 31-Dec Dec Dec-15 Performance ROE* 22% 13% -4% Cost-to-Total Net Revenue 62% 76% 123% Provision Expense / Pre Provision Profit 12% 17% -3% Capital Adequacy Equity/Total Assets 15% 18% 20% Capital Adequacy Ratio as per SBP 25% 15% 45% Funding & Liquidity Liquid Assets / Deposits and Borrowings 58% 68% 87% Advances / Deposits 66% 57% 42% CASA deposits / Total Customer Deposits 82% 77% 94% Intermediation Efficiency Asset Yield 18% 15% 12% Cost of Funds 4% 4% 2% Spread 14% 12% 10% Outreach Branches *Undiluted ROE ~38% Apr-18

4 The Pakistan Credit Rating Agency Limited ENTITY CREDIT RATING SCALE & DEFINITIONS Credit rating reflects forward-looking opinion on credit worthiness of underlying entity; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default. LONG TERM RATINGS AAA Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong capacity for timely payment of financial commitments. AA+ Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. AA This capacity is not significantly vulnerable to foreseeable events. AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC CC C D High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions. Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances or economic conditions are more likely to impair this capacity. Moderate risk. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic or business changes over time; however, business or financial alternatives may be available to allow financial commitments to be met. High credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business, and economic environment. Very high credit risk. CCC Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC Rating indicates that default of some kind appears probable. C Ratings signal imminent default. Obligations are currently in default. Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation Positive (rating may be raised, negative (lowered), or developing (direction is unclear). A watch should be resolved within foreseeable future, but may continue if underlying circumstances are not settled. Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business or financial conditions. It is not necessarily a precursor to a rating change. Stable outlook means a rating is not likely to change. Positive means it may be raised. Negative means it may be lowered. Where the trends have conflicting elements, the outlook may be described as Developing. SHORT TERM RATINGS A1+: The highest capacity for timely repayment. A1:. A strong capacity for timely repayment. A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions. A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions. B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions. C: An inadequate capacity to ensure timely repayment. Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, a suspended rating should be considered withdrawn. Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, or e) the entity/issuer defaults. Disclaimer: PACRA's rating is an assessment of the credit standing of an entity/issue in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security s market price or suitability for a particular investor.

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